James H. Lesko - Vice President of Investor Relations and Vice President

Lynn R. Blodgett - Corporate Executive Vice President and President of Services Business

Analysts

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Scott Wipperman - Goldman Sachs Group Inc., Research Division

Bill C. Shope - Goldman Sachs Group Inc., Research Division

All right, thank you all for joining us this afternoon. I'm Bill Shope; I cover hardware for Goldman Sachs. I tell you we're very happy to have Xerox with us and, particularly, we have Lynn Blodgett who runs services for Xerox which, obviously, has been a keen focus for investors. So we really, really appreciate your time. We also have Jim Lesko who I'm sure most of you all know from IR. Jim, I think you have to read a...

James H. Lesko

Thanks, Bill. Yes. During this meeting, Xerox executives may make comments that contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, and that by their nature address matters that are in the future and are uncertain. These statements reflect management's current beliefs, assumptions and expectations, and are subject to a number of factors that may cause actual results to differ materially.

Information concerning these factors is included in the company's most recent annual report on Form 10-K and its subsequent quarterly reports on Form 10-Q filed with the SEC. We do not intend to update these forward-looking statements as a result of new information or future events or developments, except as required by law.

Thanks, Bill.

Question-and-Answer Session

Bill C. Shope - Goldman Sachs Group Inc., Research Division

All right, Jim. So, Lynn, just to start off, bigger picture here. A lot of the Xerox Services story is synonymous with ACS. So could you talk about big picture again where we've come since the acquisition relative to the initial goal from Xerox and where you see it going forward?

Lynn R. Blodgett

We had 3 main reasons that we thought the acquisition made sense. One was the global presence of Xerox, and that certainly has proven to be true. European growth, because of the economy in Europe, has been a little -- probably a little slower than we had hoped, but we certainly have made good progress there and other places around the globe. The second was the value of Xerox Technology and PARC. That's my generic term for all of the great research people we have, but that has been a real positive. My only desire there is that we use it more because wherever -- whenever we've engaged that research capability it's really -- really been a great benefit for us, for the brand, the research and then the global reach, the fact that our relation -- that Xerox had relationships with companies all around the world. That's really proven to be true. And you can see from our internal growth rate, it's accelerated since being part of Xerox. So that part has worked well and the technology -- it's actually been kind of interesting to me that it's been as -- that the basic premise for the acquisition has really proven out to be true. I think there are things that if we could wave a magic wand, they would have happened quicker, but the basic ideas behind it have all held true.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Can you walk us through the overall services division, the 3 key segments, how investors should think about those? And also give us a bit of an idea for those that are newer to the story. What's heritage ACS? What's heritage Xerox?

Lynn R. Blodgett

You bet. The services business is broken down into 3 major areas. One is Business Process Outsourcing, BPO. The other is ITO, the Information Technology that's been around for a long, long time. And then the third is the Document Outsourcing space. BPO and ITO are essentially legacy ACS, although Xerox had its pieces of litigation, mortgage support. But BPO primarily is an ACS legacy deal, and then ITO also, and Document Outsourcing. Although ACS did some document outsourcing, the majority of that came from the Xerox value house. And at this point, they -- ITO is -- we had a really strong growth last quarter in ITO. BPO has consistently grown in the mid -- the high-single digits, sometimes will crack the double digits. And then Document Outsourcing tends to grow a little bit slower but, all in all, the overall mix was about 8% and I think, 7% [ph] last year combined.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

It's been a key growth driver for Xerox, and I think most us assume that it will be going forward. Can you talk about how you think about the -- you'd mentioned ITO paying a strong grower the last quarter. Could you talk about how you think about the target growth rates for each of the 3 key segments longer-term?

Lynn R. Blodgett

Sure. Yes, I think that ITO, we would -- this growth that we're seeing right now is being driven -- we had really remarkable bookings a couple of -- third, fourth quarter, 2 years ago. And so that's what you're seeing now is the ramp up effect of those really strong bookings. We don't think you should plan on double-digit growth from ITO as a normal. We would expect that to be in the mid-to high-single digits. BPO typically will probably grow a little bit faster. If you should think of the kind of the -- BPO is going to be in the high -- on the higher range. ITO kind of in the middle, and the Document Outsourcing tends to be a little bit lower.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

And when we look at the ITO segment, I mean, how are we thinking about what type of -- I mean, how we connect that to services signings? You said you had this big boost. Are we going to sort of steadily come off from here? Or do we have a few more quarters of very healthy growth, double-digit growth?

Lynn R. Blodgett

Yes. We expect that you're going to see -- you'll continue to see the strong growth. And certainly, double-digit growth over the next couple quarters. And then you can just do the math and look at -- you can see where bookings weren't quite as -- it isn't that we didn't have good bookings, it's that we had remarkable bookings for a -- we booked almost $2 billion on the business that's $1 billion -- less than $1.5 billion. So we had really, really strong bookings. You're going to see that sort of tail down a little bit. ITO -- excuse me, BPO will continue to grow about, I think, about the same. It'll -- you'll see. quarterly bumps of 1 point or 2, but it should be in those ranges.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Now when I look at BPO, can you walk us through -- that's obviously, I think, one of the strongest segments and certainly an area you have lots of experience with as well over your career. What are the key competitive advantages for Xerox in BPO? And how do we think about the drivers of market growth and where Xerox is going to tend to focus to capture their fair share?

Lynn R. Blodgett

Well, I think, there's the overall competitive advantage that we have because we're in so many different BPO. We have HR, human-resources outsourcing, finance and accounting, government, health care, private. So each one of those have different drivers, but as an overall general statement, we have strong platforms. If you look at our Medicaid business, for example, we have a very, very strong legacy platform, and we're just introducing our new enterprise platform. It's going live here in a couple of months. So the fact that we have very strong software platforms that we offer. Secondly, we have very strong process control. We're -- we know how to manage transactions. We know how to compensate people to maximize our productivity. We have a very strong global production model. So we can do work here. We can do it in a low-cost area, depending on what's the right state government thing you're going to do within that state, typically. So we have a very strong global model. And then, as I said, I think our method of compensation, our management processes, we tend to get higher productivity per -- sort of per man hour, if you want to think of it that way.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Can you dig into that a bit more because that's -- the compensation strategy, in particular, is very, very different at Xerox and at ACS prior to that. Could you help us understand exactly what the key differences are here and how that's difficult to replicate?

Lynn R. Blodgett

You bet, yes. There's the -- our basic premise in terms of the compensation is that if you reward people for their productivity and for their quality, those 2 things, if you make sure that the incentives that people have are aligned with those, then you'll typically drive better performance. So it's kind of like you, right? I mean, if -- people figured out a long time ago for -- in sales, for example. That's always been a model in most cases. If you sell more, you earn more. And what we've done is taken that same kind of concept and just applied it in a production environment. So if people actually do produce more, they earn more. And if their quality is better, they earn more. And that's really what people hire us to do, right? Is to produce their work in the highest possible quality and at the lowest possible cost. So we have systems where people, we actually track how much work they do. We track what the quality of their work is and then compensate them accordingly. And it's philosophically difficult to do because it's -- that requires a lot of discipline, and a lot of oversight. And then from a process standpoint, you have to have payroll systems that can accommodate it and so on. So it's not easy to replicate.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Sure. Digging into specific vertical opportunities -- the health care opportunity is something that we're starting to hear a lot more about. And I wanted to see if you could touch on how that's evolving, particularly with all the legislation that's gone on in the U.S. and where you think Xerox has an opportunity there?

Lynn R. Blodgett

Well, we are a very large player in the Medicaid, as you know. And so as the rolls in Medicaid expand, which they're going to do, then that represents a good opportunity for us. There are different numbers that you hear out there, but it's certainly tens of millions of additional insured people that will come on those rolls. So that represents an opportunity, just winning additional states is an opportunity. And then within the individual states, there are insurance exchanges that have to be set up. We have 6 or 7 states that we're doing that for right now. So we'll continue to bid and win our fair share of those. The whole idea of the electronic health record and then sort of outcomes-based health care, managed care versus fee-for-service, where the providers are paid a certain amount to take care of a person rather than a certain amount to do a procedure. That's quite a different model, right? And we think we have data. We have claims data that's kind of second to none, and so we are able to -- and we're working on clinical data that will help us to be able to help health [ph] providers -- health providers as they work on the outcome of a process rather than the process itself. I don't know if that make sense.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

No, that makes sense. When you go into these -- some of these recent deals that you've won and exchanges and whatnot, what typically would you say is the reason you're winning?

Lynn R. Blodgett

I think we win because we have great technology. People look at our platforms and they realize that this stuff's pretty complicated. Our Medicaid platform has 6 million lines of code in it, and there hasn't been a new Medicaid system that's been developed for a long time, in over a decade. And so now, as we demonstrate that to people, they can -- they're experts. They look at it and it say, "Wow, it has functionality and features that are unique." So one is the technology. The second is we have -- I think we have a very good service orientation and that people know that. They do reference checking. They -- if you look at our renewal rates, our renewal rates are among the highest in the industry. That becomes because you execute well and we try to be customer-centric. And then third, our pricing. We have a good balance and then we have, as I say, a global model where if we need to bring an inexpensive resource to bear on an issue, we have that. And we have the 40,000 people that operate in low-cost labor areas. We have 60,000 that are in higher-cost labor areas. So we can -- some may need something done in San Francisco, we can do it. If we need it done in a very low-cost area, we can do it. And we have workflow and processes that allow us to do that. So I think it's price. I think it's service orientation. I think it's technology.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

When we look at health care, your overall exposure percentage of revenues, percentage of the services business. Can you ballpark that for us just so we know how important this is?

Lynn R. Blodgett

Yes. Our overall health care is about $2 billion and -- out of a $11 billion, $12 billion portfolio. So it's very important. And I think growth that you're going to see -- a disproportionate amount of growth coming out of health care, and it's an obvious thing, right? It's growing as a part of our overall economy. And then, the role of people like us who can actually provide data analytics to help predict outcomes and to help reduce administrative costs, it's just kind of a natural fit.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

You also have quite a bit of exposure to government, which has been a, obviously, a key driver of your business for many years. But that's also been somewhat of a sensitivity for investors, a concern. Can you talk about some of the buffers you have there to slowing spending, particularly in state and local and federal and just sort of refresh us on the exposure and how investors should think about that?

Lynn R. Blodgett

You bet. In the federal space, I mean, obviously, there's a lot of dialogue about all the things that are going on in the federal space in the United States. Our exposure to overall federal is about 4%, something like that. So it's not -- I mean, we want the federal government to be healthy and thriving and so on, but it's -- we don't have a huge exposure there. I think our overall government exposure is about 25%, something like that, 25%. And couple of things is -- we have felt pressure from the fact that budgets have been extremely tight. There's no question about that. But the things that have made it less dramatic to us is that we don't do a lot of discretionary project work. If somebody is going to put in a -- we talk about our new Medicaid platform, but when people put that in, it's in connection with a large services contract. In other words, they're not doing it to put in a new -- they don't -- in contract with us, just to put it in a system typically, they -- sometimes that happens, but most of the time, it's so that we're going to provide them with a service over multiple years. Discretionary projects where people just want to upgrade their system or they want to add a new feature or whatever. That kind of work has really been under pressure, and we've said that ourselves. But most of our work comes from either federally mandated projects like Medicaid or Social Security where the federal government is paying for that and it's all coming -- there's lots of rules that govern the reimbursement rates and all that. Or it's where we're helping the municipality or state to make money with its -- we run the toll roads on the New Jersey Turnpike, the E-ZPass -- New York E-ZPass, New Jersey E-ZPass is our deal and that is a revenue-producing thing for those entities. And so they're -- we're not going to -- that's probably not going to go away because we're helping them in solving their budget problems, not contributing to it. So -- or we do parking or we do speed cameras or things that actually help them.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

They don't want to give up [indiscernible].

Lynn R. Blodgett

They don't want to give it up, no.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

How about if we can shift back to the overall business [indiscernible] Services. The margin structure. You had a really solid quarter last quarter on margins. The quarter before was disappointing. So how do we think about, first of all, the past -- over the past 2 quarters and the overall services margin volatility and how you manage that?

Lynn R. Blodgett

Yes. We had a -- the third quarter was disappointing. It was disappointing to us and we noted the street. We had a unique situation where the only time in our history -- I mean, over a decade, we had a contract actually, defunded, which is only time that's happened. We don't have any other indications that anything like that -- and it wasn't a huge, huge contract, but on the margin, it had an impact on it. The -- overall, we have said our margin range should be 10 to 12 or at the low end of that. We think this year, we'll finish in the 10s, but it will be towards the lower end of the 10. We have -- I said in our Investor Conference, that we have -- we don't have a revenue issue, we have a cost issue. And what I mean by that is that it's actually a good opportunity. Over 80% of our cost is -- of our labor, which is our largest cost, is in high-cost areas. Think about the people we're competing against, even some of the big U.S. names have a higher concentration of cost outside the United States or outside of a high-cost area. So that means we have opportunity to reduce our cost by migrating more in that direction. Even though we have 40,000 people, there are 60,000 that are not. And so the -- from our point of view, the key to margin stability is to push that envelope a little bit further. We've sort of been a little bit flat. We haven't declined in our percentage, but we haven't increased. So we need to do that. And that's -- you saw some of the restructuring that we did in the fourth quarter, that had an impact. We -- because we are focused on the cost, we have some extraordinary startup. The state of California was a very expensive startup for us and that had an impact on margins. We broke even in the fourth quarter. And you can see the margins benefited from that positively. So we're comfortable that you'll see a steady expansion in margin. We're saying don't count on us breaking into the 11% range of this year. We should count on us, you'll see incremental improvement, and we'll be in the lower end of the range. But we think, by managing our cost properly, we can sort of keep that march going and kind of slow and steady wins the race.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

On the labor side of the equation, what are some of the gating factors there? Because I know that in areas of BPO, it's different from traditional IT Outsourcing where you do need some local presence. So how do you think about those gating factors and how quickly can you reduce costs in that respect?

Lynn R. Blodgett

Yes. I mean, you're exactly right. With the movement of work to a low-cost area requires a customer's approval. In the case of government, typically it's not going to -- we're not going to move work, nor do we really want to move work. But the gating factor, that really has more to do with the customer approval, the technical feasibility of it. And now, almost everything can be moved, almost anywhere. We have a lot of our internal costs still that are in high-cost areas, and that's not governed by anybody except us. And so we're focused on moving as much of that as we can.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Okay. When -- shifting over to services signings. I think there was some confusion or a lot of a focus on the last earnings call as to how to correlate your signings declines with your expectation for fairly healthy revenue growth, and with many services companies that disconnect wouldn't be as obvious. So can you talk about, when we look at Xerox's Services business, why we need to be careful in trying to tie those 2 together? And what forecasting power, if any, does your signings number actually have for us?

Lynn R. Blodgett

So those are very full questions. Obviously, the more we can sign, the better. And we would -- last year, bookings were down slightly from the year before, but we had a very strong '11, and it was primarily because IT was so strong. The other thing, though, that made it look probably more drastic than it really was, was that we measured total contract value and annual recurring revenue. Annual recurring revenue is the amount of revenue we're going to see from a contract in a given year once it's ramped up, okay? So that's really the number that you have to look at to calculate growth is that annual recurring revenue. We also report total contract value, which is essentially the backlog number. You take the annual recurring revenue, you multiply it by the number of years in the contract and I used the example in the meetings this morning, we signed it -- a contract with the city to manage their parking. This was 2 years ago and it was, I think, $5 million a year, but it was a 50-year contract. And so the total contract value of that is going to be big, but the real impact on an annual basis is pretty small, you see. And so what happened last quarter is that bookings -- we were not happy. We would have hoped bookings would have been a little bit higher than they were. But it was still, I think, in our top 5 quarters of bookings. It looked a lot more drastic because the total contract value was lower because the contract length that we had signed were lower. So instead of signing a 50-year $5 million-a-year deal, we did 3 customer care deals of $20 million each, but they were only 3-year contracts. So you see what I mean -- so the annual impact on it was not as drastic as the way it would look if you look at the total contract. I feel like I'm speaking an double talk here but...

Bill C. Shope - Goldman Sachs Group Inc., Research Division

No, no, no. And you had said on the call as well that 2 [ph] Contract value overall was shrinking, right? I mean, not the contract value -- contract length.

Lynn R. Blodgett

Contract length. The other thing you have to look at, though, when you consider contract length is the renewal rate because, even if the customer only contracts in 3-year chunks, if we continue to renew 85% or 90% of them, our customer relationship is long. I mean, we -- it doesn't mean just because we only sign a 3-year term -- we typically renew those. And so we have customers that average contract length is 3 years, and we've been doing work for them for 20 years because we keep renewing. So we like having longer contracts, but typically, a longer contract has a little more capital intensity to it because it's a bigger deal, typically. And that's why it turns out to be longer because to make the pay back, you have to have a longer term. So shorter contracts are a little less price-sensitive. It's not dramatic, but it's a little -- we're talking about 10 bps here, 10 bps there, right? So contract length is important. We want to push for long contracts in most cases. But it's not -- that decline was a little exaggerated.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Okay. I'm going to ask one question and then open it up to the audience. So I'll let you think about questions while I do that. I wanted to dig into that renewal rate question. How much visibility do you have or control, I should say, over your renewal rate? Because I know we did have an issue last year with a renewal rate debt and...

Lynn R. Blodgett

Two years ago, and solved it. In '12, we were up by 5% but anyway...

Bill C. Shope - Goldman Sachs Group Inc., Research Division

So yes, so 2 years ago, you had that one slip, but in general, since, and you've kept it within your targeted range. So how much control do you have over that and can you talk about it?

Lynn R. Blodgett

Well, we have a lot of control over the renewal -- the ultimate renewal because that's driven by pricing. If we can be price-competitive or if we deliver good service, those are the things that are -- that's going to -- and innovation, those are the things that are going to cause people to renew. So we have complete control over that, right? What we don't have control over is the timing because it's -- especially if we -- because, typically, we don't wait for a contract to go to term. We'll go in early, a year before. If it's a 5-year contract, in the fourth -- beginning of the fourth year, we'll go to the customer and say, "well, instead of going to bid and going through all that, let's renew now, give us another 3 years and we'll give you a discount." So this last year, you'll see a financial gain we benefit because we get an extra 2 years on the contract, and it didn't have to go out to RFP. So that ends up being -- that's a good thing for us. We don't have control over that. I mean, the customer might say, sure, sounds great, but then it takes an extra 2 months to get it done. And so that slips from one quarter to the next quarter. That throws all the math off because it becomes part of the formula, how much was available to be renewed and how much did you renew.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Two years ago, it was more of a visibility issue.

Lynn R. Blodgett

Yes. Right.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Okay, okay. Questions from the audience? Scott.

Scott Wipperman - Goldman Sachs Group Inc., Research Division

I came in a little late, so I apologize if I've missed this, but I was just hoping you could talk about the managed print business a little bit more. I guess, first, just maybe from a competitive standpoint, we've heard HP talk a lot about wanting to get more aggressive in this space, so I'd love to hear about the competitive dynamics. And then second, if you could just comment on how penetrated is this market? Where -- is there a particular opportunity, maybe on a geographic basis?

Lynn R. Blodgett

And the second part was in relation to managed print also?

Scott Wipperman - Goldman Sachs Group Inc., Research Division

Yes, both managed print.

James H. Lesko

Sure, I'd be glad to. First off, the managed print continuous to be a great business for us. We started it probably a decade ago and are still the industry leader. Very [indiscernible] in enterprise, which is probably not growing quite as fast as -- for highly public-penetrated. And certainly feel some competitive pressures as people look for large deal opportunities. But we do find significant growth still in small/medium business. And one of the ways we're attacking that is through our partners overall [ph] , providing our back office infrastructure systems to third parties to allow them to offer managed print services, and with the franchise, it's a little bit -- our systems will work not only on Xerox Technology, but third-party technology as well. So we're really interested in finding the best solution for the customer and managing that whole environment for them. So we still feel very good about it. It's growing, $3-plus billion business. And yes, it's competitive, but we think we -- broadest [ph] Array of product capability, software tools and solutions, which we think are second to none. We're vendor-agnostic in terms of how our software plays on the system. And we're still very confident in that. From a competitive perspective, I can't speak specifically to our competitors. They're certainly very interested in it as well. But what I do know is I think we feel very good about not only the capabilities we have today, but what we're going to keep bringing out in the future. So we're -- we feel good about this space, and particularly growing, I think, that small/medium business, particularly medium business growing very, very well. Global imaging, which is a kind of dealer infrastructure. They're doing fantastic in a kind of mid-market offering of business document outsourcing services. And really -- is their lead offering today as well. So it continues to grow and the benefit for us is we are very low-share leader in single-function printers. And there's a -- over the years, there's been a huge proliferation of these single-function printers in many enterprises. They don't fully understand the costs associated with those because they've been done on de-centralized basis. So we can help either manage those costs in that same footprint, or we can help consolidate that footprint on multifunction devices and/or other devices which we own.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Lynn, as we touched on your acquisition strategy and services overall, there's always a steady pace of, I'd say, small acquisitions. So if we could talk about the strategy behind that, and then also your appetite for, perhaps, larger deals and where you have opportunities for growth in that respect?

Lynn R. Blodgett

Yes. Our acquisition strategy is that we use acquisitions for 3 or 4 key reasons. One, we can obtain technology. We bought a company called WDS in the U.K. that does data analytics for wireless providers. And we're a very big customer care provider to the Verizons of the world. So we acquired that company because they had a great analytic capability, rather than us building it. It's less expensive for us. We're -- we get a revenue stream with it, a profit stream, versus having let your programmers sit and try to figure that out. So one is that we acquire technology. The second is that we do it for geographic expansion. In this case, we not only got some great technology, we also added to our footprint in the U.K. and in Europe. The third is that we may consolidate a competitor. If we're able to buy -- and it doesn't happen a lot, though. We may have a small -- a regional company that we compete against. And they might provide us with some more geographic coverage, and we can consolidate the competition. So those are the key reasons. And our -- we have a strategy with our customers that we call penetrate and radiate. And the concept is when a piece of business with a company, especially a big company, and do a good job and what will happen is they'll ask you to do something else. It's a very sophisticated strategy. And you know what, it works. It works really well. And if you look at our customer growth, typically we'll start out with $1 million or $5 million and 3 or 4 years later, we're doing $20 million or $25 million because we're not only doing that ITO task for them, now we're doing finance and accounting and HR or in claims processing, instead of just doing the mailroom, I mean, to pick a simple example, instead of just doing the mailroom, now we do -- we call the doctors. We mail back the -- or we send them electronic record back, or we print the -- a notice to the -- so we've taken that entire continuum. We do audits for claims whereas we used to not do that. So we've just -- and an acquisition is a great way to take that continuum of service and say, we're missing that piece, let's go find somebody that does that and have them fit in. So typically, that's the acquisition strategy. It's driven at the line of business level. So each of the Chief Operating Officers that we have is responsible to say, okay, where are we going in our IT business? What are our growth strategies? Do we get there by building versus buying, and that's how it works. In terms of large acquisitions, we have -- we haven't -- our typical -- a good acquisition for us, typically, is somewhere between $25 million and $100 million. If there is a -- now and then, we'll come across a bigger deal, but still, in the overall scheme of Xerox there isn't a -- we're not working on anything that would be -- that would fall way outside of the -- We look at deals, but it's tougher for us to do something if it gets much above that [indiscernible]. It doesn't mean we can't do it, but it's -- we only -- we have a finite amount of dollars that we're going to spend and to try to make sure that we're getting the most leverage out of that.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Okay, great. Well, we have time. There's one more question. Right here?

Unknown Analyst

I guess the question would be, is there anything to be excited about on the hardware side? Do you know if there's a lot of news out there about printed -- number of printed pages going down, the effects of that on consumables, the lengthening sort of, of hardware sales cycles. I'm just curious whether you guys are seeing anything different or whether that consensus is tripped.

James H. Lesko

Well, I think one is we feel very good about our business. In fact, we have a significant product refresh that's undergoing this month. We've already announced some production devices this month, and there's some general office product refresh in both color, multi-function model [ph] That's going to happen in the next week. So we feel positive about it. But we've been fairly open that we recognize there are one secular issues in certain segments of the market, particularly printing of statements and transactional kind of work. We think in a very, very home market -- in individual market, there's more viewing devices that are being used. And in the general world, there's probably a decline, and we've recognized that. We're probably one of the few companies that are out there that admit that, and we're really positioning ourselves for a more services-oriented portfolio, which over 2/3 of our business will be services in the next -- over the 4 or 5 years. Having said that, we're going to continue and invest in those areas that are growing. We have a leadership position. We're going to maintain that leadership position in the growth areas which are really color, multi-function shared devices, services-led devices and production, whether it's a continuing thrust, I think, of moving from offset to more digital, and as the economy picks up, which has had an impact on marketing spend and so forth for clients, we want to be sure we are well-positioned to take advantage of more printed marketing capabilities, customer communication capabilities, which in the digital world, provide a much higher ROI to firms when they use it. So yes, this is -- certainly there are some secular issues. There's some macro issues. Our eyes are wide open. Relative to that, it's still a great business. We want to compete aggressively in that, refreshing our product line to do so. But we're going to do it in the areas that we think that market has likes and isn't necessarily contracting significantly. It's been a good year for us, though.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Well, thank you for joining us.

Lynn R. Blodgett

Thank you. We appreciate it. Thank you.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Jim, thank you.

James H. Lesko

Thanks, Bill. I appreciate it.

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